BILL NUMBER: AB 2699	CHAPTERED  09/12/00

	CHAPTER   413
	FILED WITH SECRETARY OF STATE   SEPTEMBER 12, 2000
	APPROVED BY GOVERNOR   SEPTEMBER 11, 2000
	PASSED THE ASSEMBLY   AUGUST 22, 2000
	PASSED THE SENATE   AUGUST 18, 2000
	AMENDED IN SENATE   JUNE 20, 2000
	AMENDED IN ASSEMBLY   APRIL 25, 2000

INTRODUCED BY   Assembly Member Cox
   (Principal coauthor:  Assembly Member Firebaugh)

                        FEBRUARY 25, 2000

   An act to amend Section 1812.201 of the Civil Code, relating to
seller assisted marketing plans.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 2699, Cox.  Seller assisted marketing plans:  exemptions.
   Existing law imposes requirements on seller assisted marketing
plans, as defined.  Existing law also specifies certain transactions
that are not deemed to be seller assisted marketing plans for the
purposes of those requirements.
   This bill would provide that a product distributorship that meets
certain requirements is not a seller assisted marketing plan for the
purpose of those requirements.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 1812.201 of the Civil Code is amended to read:

   1812.201.  For the purposes of this title, the following
definitions shall apply:
   (a) "Seller assisted marketing plan" means any sale or lease or
offer to sell or lease any product, equipment, supplies, or services
that requires a total initial payment exceeding five hundred dollars
($500), but requires an initial cash payment of less than fifty
thousand dollars ($50,000), that will aid a purchaser or will be used
by or on behalf of the purchaser in connection with or incidental to
beginning, maintaining, or operating a business when the seller
assisted marketing plan seller has advertised or in any other manner
solicited the purchase or lease of the seller assisted marketing plan
and done any of the following acts:
   (1) Represented that the purchaser will earn, is likely to earn,
or can earn an amount in excess of the initial payment paid by the
purchaser for participation in the seller assisted marketing plan.
   (2) Represented that there is a market for the product, equipment,
supplies, or services, or any product marketed by the user of the
product, equipment, supplies, or services sold or leased or offered
for sale or lease to the purchaser by the seller, or anything, be it
tangible or intangible, made, produced, fabricated, grown, bred,
modified, or developed by the purchaser using, in whole or in part,
the product, supplies, equipment, or services that were sold or
leased or offered for sale or lease to the purchaser by the seller
assisted marketing plan seller.
   (3) Represented that the seller will buy back or is likely to buy
back any product made, produced, fabricated, grown, or bred by the
purchaser using, in whole or in part, the product, supplies,
equipment, or services that were initially sold or leased or offered
for sale or lease to the purchaser by the seller assisted marketing
plan seller.
   (b) A "seller assisted marketing plan" shall not include:
   (1) A security, as defined in the Corporate Securities Law of 1968
(Division 1 (commencing with Section 25000) of Title 4 of the
Corporations Code), that has been qualified for sale by the
Department of Corporations, or is exempt under Chapter 1 (commencing
with Section 25100) of Part 2 of Division 1 of Title 4 of the
Corporations Code from the necessity to qualify.
   (2) A franchise defined by the Franchise Investment Law (Division
5 (commencing with Section 31000) of Title 4 of the Corporations
Code) that is registered with the Department of Corporations or is
exempt under Chapter 1 (commencing with Section 31100) of Part 2 of
Division 5 of Title 4 of the Corporations Code from the necessity of
registering.
   (3) Any transaction in which either the seller or purchaser or the
lessor or lessee is licensed pursuant to and the transaction is
governed by the Real Estate Law, Division 4 (commencing with Section
10000) of the Business and Professions Code.
   (4) A license granted by a general merchandise retailer that
allows the licensee to sell goods, equipment, supplies, products, or
services to the general public under the retailer's trademark, trade
name, or service mark if all of the following criteria are satisfied:

   (A) The general merchandise retailer has been doing business in
this state continually for five years prior to the granting of the
license.
   (B) The general merchandise retailer sells diverse kinds of goods,
equipment, supplies, products, or services.
   (C) The general merchandise retailer also sells the same goods,
equipment, supplies, products, or services directly to the general
public.
   (D) During the previous 12 months the general merchandise retailer'
s direct sales of the same goods, equipment, supplies, products, or
services to the public account for at least 50 percent of its yearly
sales of these goods, equipment, supplies, products, or services made
under the retailer's trademark, trade name, or service mark.
   (5) A newspaper distribution system distributing newspapers as
defined in Section 6362 of the Revenue and Taxation Code.
   (6) A sale or lease to an existing or beginning business
enterprise that also sells or leases equipment, products, supplies,
or performs services that are not supplied by the seller and that the
purchaser does not utilize with the equipment, products, supplies,
or services of the seller, if the equipment, products, supplies, or
services not supplied by the seller account for more than 25 percent
of the purchaser's gross sales.
   (7) The sale in the entirety of an "ongoing business."  For
purposes of this paragraph, an "ongoing business" means a business
that for at least six months previous to the sale has been operated
from a particular specific location, has been open for business to
the general public, and has had all equipment and supplies necessary
for operating the business located at that location.  The sale shall
be of the entire "ongoing business" and not merely a portion of the
ongoing business.
   (8) A sale or lease or offer to sell or lease to a purchaser (A)
who has for a period of at least six months previously bought
products, supplies, services, or equipment that were sold under the
same trademark or trade name or that were produced by the seller and,
(B) who has received on resale of the product, supplies, services,
or equipment an amount that is at least equal to the amount of the
initial payment.
   (9) The renewal or extension of an existing seller assisted
marketing plan contract.
   (10) A product distributorship that meets each of the following
requirements:
   (A) The seller sells products to the purchaser for resale by the
purchaser, and it is reasonably contemplated that substantially all
of the purchaser's sales of the product will be at wholesale.
   (B) The agreement between the parties does not require that the
purchaser pay the seller, or any person associated with the seller, a
fee or any other payment for the right to enter into the agreement,
and does not require the purchaser to buy a minimum or specified
quantity of the products, or to buy products for a minimum or
specified period of time.  For purposes of this paragraph, a "person
associated with the seller" means a person, including an individual
or a business entity, controlling, controlled by, or under the same
control as the seller.
   (C) The seller is a corporation, partnership, limited liability
company, joint venture, or any other business entity.
   (D) The seller has a net worth of at least ten million dollars
($10,000,000) according to audited financial statements of the seller
done during the 18 months preceding the date of the initial sale of
products to the purchaser.  Net worth may be determined on a
consolidated basis if the seller is a subsidiary of another business
entity that is permitted by generally accepted accounting standards
to prepare financial statements on a consolidated basis and that
business entity absolutely and irrevocably agrees in writing to
guarantee the seller's obligations to the purchaser.  The seller's
net worth shall be verified by a certification to the Attorney
General from an independent certified public accountant that the
audited financial statement reflects a net worth of at least ten
million dollars ($10,000,000).  This certification shall be provided
within 30 days following receipt of a written request from the
Attorney General.
   (E) The seller grants the purchaser a license to use a trademark
that is registered under federal law.
   (F) It is not an agreement or arrangement encouraging a
distributor to recruit others to participate in the program and
compensating the distributor for recruiting others into the program
or for sales made by others recruited into the program.
   (c) "Person" includes an individual, corporation, partnership,
limited liability company, joint venture, or any business entity.
   (d) "Seller" means a person who sells or leases or offers to sell
or lease a seller assisted marketing plan and who meets either of the
following conditions:
   (1) Has sold or leased or represents or implies that the seller
has sold or leased, whether in California or elsewhere, at least five
seller assisted marketing plans within 24 months prior to a
solicitation.
   (2) Intends or represents or implies that the seller intends to
sell or lease, whether in California or elsewhere, at least five
seller assisted marketing plans within 12 months following a
solicitation.
   For purposes of this title, the seller is the person to whom the
purchaser becomes contractually obligated.  A "seller" does not
include a licensed real estate broker or salesman who engages in the
sale or lease of a "business opportunity" as that term is used in
Sections 10000 to 10030, inclusive, of the Business and Professions
Code, or elsewhere in Chapter 1 (commencing with Section 10000),
Chapter 2 (commencing with Section 10050), or Chapter 6 (commencing
with Section 10450) of Part 1 of Division 4 of the Business and
Professions Code.
   (e) "Purchaser" means a person who is solicited to become
obligated or does become obligated on a seller assisted marketing
plan contract.
   (f) "Equipment" includes machines, all electrical devices, video
or audio devices, molds, display racks, vending machines, coin
operated game machines, machines that dispense products, and display
units of all kinds.
   (g) "Supplies" includes any and all materials used to produce,
grow, breed, fabricate, modify, develop, or make any product or item.

   (h) "Product" includes any tangible chattel, including food or
living animals, that the purchaser intends to:
   (1) Sell or lease.
   (2) Use to perform a service.
   (3) Resell or attempt to resell to the seller assisted marketing
plan seller.
   (4) Provide or attempt to provide to the seller assisted marketing
plan seller or to any other person whom the seller suggests the
purchaser contact so that the seller assisted marketing plan seller
or that other person may assist, either directly or indirectly, the
purchaser in distributing, selling, leasing, or otherwise disposing
of the product.
   (i) "Services" includes any assistance, guidance, direction, work,
labor, or services provided by the seller to initiate or maintain or
assist in the initiation or maintenance of a business.
   (j) "Seller assisted marketing plan contract" or "contract" means
any contract or agreement that obligates a purchaser to a seller.
   (k) "Initial payment" means the total amount a purchaser is
obligated to pay to the seller under the terms of the seller assisted
marketing plan contract prior to or at the time of delivery of the
equipment, supplies, products, or services or within six months of
the purchaser commencing operation of the seller assisted marketing
plan.  If the contract sets forth a specific total sale price for
purchase of the seller assisted marketing plan which total price is
to be paid partially as a downpayment and then in specific monthly
payments, the "initial payment" means the entire total sale price.
   (l) "Initial cash payment" or "downpayment" means that portion of
the initial payment that the purchaser is obligated to pay to the
seller prior to or at the time of delivery of equipment, supplies,
products, or services.  It does not include any amount financed by or
for which financing is to be obtained by the seller, or financing
that the seller assists in obtaining.
   (m) "Buy-back" or "secured investment" means any representation
that implies in any manner that the purchaser's initial payment is
protected from loss.  These terms include a representation or
implication of any of the following:
   (1) That the seller may repurchase either all or part of what it
sold to the purchaser.
   (2) That the seller may at some future time pay the purchaser the
difference between what has been earned and the initial payment.
   (3) That the seller may in the ordinary course buy from the
purchaser items made, produced, fabricated, grown, bred, modified, or
developed by the purchaser using, in whole or in part, the product,
supplies, equipment, or services that were initially sold or leased
to the purchaser by the seller.
   (4) That the seller or a person to whom the seller will refer the
purchaser may in the ordinary course sell, lease, or distribute the
items the purchaser has for sale or lease.
